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Power of Tokens


“Token” is a word that you hear a lot in
cryptocurrency.
In fact, you might hear Bitcoin described as a “crypto
token”, because technically all crypto assets can
also be described as tokens.
But the word has increasingly taken on two specific
meanings that are common enough that there’s a
good chance you’ll encounter them.
The other increasingly common meaning for “token”
is to describe crypto assets that run on top of another
cryptocurrency’s blockchain.
Almost everyone has confused a token with a coin at
some point in their cryptocurrency journey.
The fact is that coin and token are very much alike
on a fundamental level.
They both represent value and can process
payments.
You can also swap coins for tokens and vice versa.
The main difference between these two comes
down to utility.
There are things you can do with tokens and not
with coins.
On the other hand, some marketplaces will accept
coins and not tokens.
While all cryptocurrencies are technically tokens,
people don’t usually count Bitcoin as a token but
rather as a coin, which means it’s native to the
blockchain that it’s built on.
Tokens, on the other hand, in the sense we’ve been
talking about here, function within pre-existing
blockchains.
In fact one blockchain can house many different
tokens, with Ethereum’s blockchain which is
currently home to half a million of them.
It’s similar to comparing investors and traders, all
traders invest, but not all investors trade.
A cryptocurrency can be a coin or a token,
depending on whether it’s the native
cryptocurrency for its own blockchain or not.
Crypto coins have their own underlying blockchains,
crypto tokens don’t.
Tokens help decentralized applications to do
everything from automate interest rates to sell
virtual real estate.
But they can also be held or traded like any other
cryptocurrency.
Tokens are created through an initial coin offering
(ICO), which represents the cryptocurrency version
of an initial public offering (IPO).
Tokens are created by cryptocurrency companies that
want to raise money.
Investors who are interested in the company can
purchase these tokens.
Investors can use crypto tokens for any number of
reasons.
They can hold onto them to represent a stake in the
cryptocurrency company or to trade or make
purchases of goods and services.
As a practical example, decentralized storage
provider allows investors to stake their native
tokens that help secure its network and earn
transaction fees and rewards.
Often we come across people using cryptocurrency
to refer to both the native coins as well as the tokens.
Given the difference between them, a more correct
usage to refer both these digital asset classes
would be to call them crypto assets.
Note that most cryptocurrency users usually own
both coins and tokens.
What are your thoughts on the power of tokens?
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#blockchain #technology #innovation

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